Maggie\'s Muffins, Inc., generated $2,000,000 in sales during 2015, and its year
ID: 2771959 • Letter: M
Question
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,300,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2016, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 7%, and its payout ratio will be 65%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate? Do not round intermediate steps. Round your answers to the nearest whole.
Sales can increase by $ , that is by %.
Explanation / Answer
Formula for self suppoting growth rate g= [m(1-d)*A/E]/ [A/S0-m(1-d)*A/E] Variables Details Amt $ S0 Current Sales 2,000,000 m Net Profit margin on sales 7% d Dividend payout ratio 65% A Total assets 1,300,000 Current Liabilities 1,000,000 Notes payable 300,000 Accounts payable 500,000 Accruals 200,000 E Equity =Assets-Liabilities =1,300,000-1,000,000 = 300,000 g Self supporting sales growth rate 19.48% Now g = [0.07(1-0.65)*13/3]/[13/20-0.07(1-0.65)*13/3] = [0.07*0.35*4.33]/[0.65-0.07*0.35*4.33] = =0.106/0.544 =19.48% Therefore the self supporting sales growth rate without external fund requirement is 19.48%
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